Fossil stages fourth-biggest gain in 20 years as it again prove skeptics wrong

By Andria Cheng

Fossil

Fossil

Fossil Group Inc.’s stock
/quotes/zigman/17693969/quotes/nls/foslFOSL has had a wild ride. On Tuesday, shares surged 18% to $126.94 to lead gainers in the S&P 500, marking their fourth-biggest percentage gain since the IPO in 1993.

On Monday, the stock dropped 6% and was at one point also the biggest S&P decliner after Barclays cut it to underweight, citing several data points that signaled worries about slowing watch demand.

Repeating the same act as in the first quarter, the company on Tuesday staged another post-earnings relief rally, with per-share second-quarter profit topping consensus estimate by 17 cents a share, FactSet data showed. Fossil raised its full-year guidance again.

Further pleasing investors, it showed solid demand and improvement in some areas of concern. European wholesale sales, for instance, jumped 16%, after the region’s economic crisis had slowed sales. They rose 14% in Asia and 4% in North America. The wholesale business, three quarters of the company’s total sales, spans a wide spectrum of customers from Wal-Mart Stores Inc.
/quotes/zigman/245476/quotes/nls/wmtWMT to Nordstrom Inc.
/quotes/zigman/235890/quotes/nls/jwnJWN

Its watches cost from $7 at discounters to $4,000 at luxury retailers, with a majority of them from $85 to $600.

Erasing concerns about slowing watch demand, Fossil said its multi-brand watch portfolio and jewelry sales rose at least 10%. The Richardson, Texas-based company makes watches under its namesake label, but also under brands including Michael Kors
/quotes/zigman/7705184/quotes/nls/korsKORS, which on Tuesday also reported a much-better-than-expected quarterly result that sent its shares up 3.2%. Fossil also is introducing a watch collection under Tory Burch, another hot name in the industry.

“Upside story (is) still ticking,” said Cowen & Co. analyst John Kernan, adding the company could beat its full-year target.

“We are very positive on the developments Fossil has made in improving its liquidation strategy, growing its retail business and driving other operational efficiencies to drive this margin expansion.”

Fossil has boosted profit by reducing the number of items it sells and sending a greater mix of clearance products to its own outlets instead of third-party liquidators. The company also has expanded its own retail business, which is more profitable. Fossil makes more than three-fifths of its non-Swiss made watches through its wholly- or majority-owned factories, which it has said has given it another competitive advantage.

While mobile phone sales have threatened to make watches obsolete, the likes of Fossil also have been praised by making them coveted fashion accessories.

Indeed, worldwide watch sales have risen in each of the past four years to $59.1 billion last year from $45.5 billion in 2009, Euromonitor data showed. Fossil’s share rose to 6.2% from 4.7% during the same period.

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About Behind the Storefront

Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.